401(k) Rollovers: Not Just for Retirees

401(k)s can streamline retirement savings by taking advantage of the automated payroll deduction and employer match. However, as you get closer to retirement, a 401(k) may not be the most beneficial type of account. That’s why reviewing your options early based on your financial and retirement goals is a good idea.

One option is rolling over your 401(k) into an IRA while you are still employed. That’s right—you don’t have to be retired to do this!

After age 59.5, you can roll over assets from your 401(k) into an IRA without paying an early withdrawal penalty if the plan allows it.  IRAs can offer more flexibility regarding investment choice s along with  the possibility of lower fees. And if you’re still employed, you may be able to continue contributing to your 401(k), reaping the rewards of both accounts.

Let’s explore these key benefits of rolling your 401(k) into an IRA before retirement.


401(k)s and 403(b)s provide employees with a set list of offered funds. The plan administrator must offer a variety of funds for different goals, but these may not be enough to meet your needs.

On the other hand, IRAs typically offer a more comprehensive range of investment options than a 401(k) plan. This allows you to diversify your investments, have more control over them, and choose your registered investment advisor (RIA) (i.e., the firm that provides investment guidance and manages your portfolio).

If you’re unsure of what your employer-sponsored plan offers, contact your plan provider for a list of available funds. That way, you can compare your options thoroughly.

Potentially Lower Fees

Thanks to the variety of assets available in IRAs, you may be able to choose lower-expense assets that not all 401(k) plans offer. For example, 401(k) plan fees can include:

  • Investment fees
  • Plan administration fees
  • Individual service fees

Together, they can snowball and reduce your account’s growth. These fees can also differ by plan size, number of participants, and employer history. Smaller plans often have higher costs associated with them compared to large plans.

Leverage Both Plans

Many are hesitant to roll over their 401(k) because they think they’ll miss out on the benefits of an employer-offered plan, but this is not necessarily the case. You may be able to continue contributing to the plan as long as you are employed.

By rolling over all or some of a 401(k) into an IRA while continuing to fund the plan, you can create flexibility in your retirement planning while taking advantage of the plan offerings, including employer matching and the ability to borrow against the 401(k.)

Generally, employees can continue contributing to their employer-sponsored plans after an in-service rollover, but this isn’t always the case. If you want to continue contributing to your 401(k) while starting an IRA, contact your current provider to determine if a temporary penalty would be enforced.

Is an In-Service Rollover Right for Me?

Although IRAs can offer more flexibility and potential than 401(k)s, an in-service rollover is not always the best option. While individuals must wait until age 59.5 to withdraw funds without penalty in an IRA, most 401(k) plans allow withdrawals at 55 years old for early retirees. Some also offer low-expense investment options for investors, so reviewing your 401(k) plan before deciding is essential.

Of course, this varies based on your situation, current plan, and retirement goals. Working with an investment advisor can help you create a tailored retirement plan. If you’re ready to assess your options, chat with a Carlson Investments representative today!

Carlson Investments does not provide tax, legal, or accounting advice. This content has been written for informational purposes only. Always consult your individual tax, legal, or financial professionals for advice tailored to your situation.

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